Basel III Endgame
Fed/FDIC/OCCFollowing the 2008 financial crisis, the Agencies (FED -Federal Reserve System-, FDIC -Federal Deposit Insurance Corporation- and OCC -Office of the Comptroller of the Currency-) introduced an initial set of reforms to improve the deficiencies in the regulatory capital framework by bringing it in line with Basel III. In July 2023, the Agencies jointly published their proposal to adapt to the final Basel III reforms, a proposal known as Basel III Endgame with a view to strengthening capital requirements for large banks. This proposal aims to strengthen the resilience of the banking system by applying a broader set of capital requirements to a greater number of large banks.
Basel III Endgame
Executive summary
The Agencies have jointly published for comment a Proposed rulemaking to strengthen capital requirements for large banks, known as the Basel III Endgame. This proposal is the US adaptation of the final Basel III reforms and will apply to all banks with more than $100 billion in assets and their deposit-taking subsidiaries from July 2025 with phased-in implementation until June 2028, involving a major change in the way their capital requirements are measured.
Main content
This Technical Note summarises the main changes proposed for the calculation of each type of risk:
- Credit risk. The proposal revises the standardised approach and replaces the use of internal models with a new extended approach applicable to large banks (ERBA).
- Counterparty credit risk (CCR). A new standardised, more risk-sensitive approach is introduced to measure the exposure in the event of default, taking into account replacement costs and potential future exposure. The standardised approach for CCR (SA-CCR) replaces the current methodology for banks.
- Market risk. A standardised risk-sensitive methodology is introduced and the internal models-based approach is revised.
- Credit Valuation Adjustment (CVA) risk. New CVA risk requirements are introduced, arising from the incorporation of new standardised approaches to the calculation of risk weights and hedges.
- Operational risk. Basel III Endgame removes internal risk assessment methods (IRAs) from the prudential framework. Instead, institutions will have to apply a standardised approach (SMA) with two components: the business indicator (BI) and the internal operational loss multiplier (ILM).
Download the technical note on Basel III Endgame.